Wall Street Journal Examines Regulatory Exemption Concerning Health Plans Offered by Associations

The Wall Street Journal on Nov. 21 reports on the "widespread abuse" of an exemption in insurance regulations that has allowed insurers or insurance agents to sell coverage through supposedly independent not-for-profit associations. The Journal reports that an increasing number of Americans are purchasing health coverage through various associations, which offer "enticing promises" of group discounts and "independent endorsements of the best policies available at the best rates." Many states exempt the associations from state insurance regulations, particularly rules about rate setting, to keep the associations from needing to comply with "potentially ... 50 sets of conflicting laws," the Journal reports. As a result, associations typically do not need to explain how rates are set, nor do they need government approval for premium increases. In return for the exemption, 40 states require the associations to demonstrate that they were not created solely to sell insurance. However, an investigation into insurance industry practices indicates that insurance companies and agents "frequently" buy or form associations, which they then use to market their health coverage. The Journal reports that a review of association records and filings with state insurance departments indicates that about two dozen insurers are using more than 50 associations as a "marketing arm." Given the loopholes in regulation, some associations have been offering low, "teaser" rates that increase "sharply" after a member enrolls. The Journal reports that such policies also often have "gaps" in coverage. Supporters of such health plans, however, say they give "working-class" people access to affordable health coverage (Terhune, Wall Street Journal, 11/21).